Pacific Oak Strategic Opportunity REIT: Value Declines

Pacific Oak Strategic Opportunity REIT: Declining Value

The White Law Group continues to investigate potential securities claims involving Pacific Oak Strategic Opportunity REIT.   

Pacific Oak Strategic Opportunity REIT (formerly KBS Strategic Opportunity REIT II), is a non-traded Real Estate Investment Trust (REIT), focused on “dislocation, lack of liquidity, and government intervention” that exists in the commercial real estate markets by acquiring “opportunistic investments” in discounted debt and distressed equity assets.  

The company reported that its board has approved an estimated value per share of the company’s common stock of $8.03, as of Sept. 30, 2023. In December 2022, the estimated NAV was $10.50 per share, as of Sept. 30, 2022, indicating a decline of 23.5%. According to Lodas Markets, a secondary market for non-traded investments, Pacific Oak’s shares are currently listed to sell at $3.25 per share.

The reason for the decline in value, according to the company, is a significant loss of appraised value in the company’s real estate properties, which accounted for $1.86 of the $2.47 per share loss. 

Commercial Real Estate takes a Hit

Unfortunately for investors, commercial office space has taken quite a hit since the pandemic. Although Pacific Oak has reportedly been transitioning from an office sector focus toward single-family rentals and apartments, its portfolio reportedly still consists of approximately 50% in office space, according to Lodas Markets.  

As of 2015, the REIT’s portfolio was approximately 72% office focused and 16% land. 

Pacific Oak Instructs Shareholders to Reject Tender Offer  

In April 2024, Pacific Oak Strategic Opportunity REIT Inc. advised its stockholders to reject a mini-tender offer by Comrit Investments 1 LP for up to 991,501 shares at $3.53 per share. The REIT claims that Comrit aims to profit from the REIT’s illiquidity by purchasing shares at a discounted price.

Despite facing liquidity challenges, the REIT claims is is working to increase liquidity through property sales and portfolio management.  Shares were originally sold for $10 per share.    

Redemption Program is Oversubscribed – Pacific Oak Strategic Opportunity REIT 

The share redemption program (SRP) has been significantly oversubscribed in recent years, with approximately 14.3% of total shareholders waiting to redeem their shares.  

On January 26, 2022, the board of directors approved the temporary suspension of its share redemption program for the month of January 2022 with redemptions anticipated to resume at the end of February 2022. However, as of March 31, 2023, the company had unfulfilled requests to redeem 14,768,229 Shares due to “liquidity limitations”.    

The company said for the remainder of 2022 that no funding was made available for redemptions, excluding funding reserved for redemptions in connection with a stockholder’s death, qualifying disability or “determination of incompetence”.

The Risks of Investing in Non-Traded REITs

Office REITs have taken a hit due to the changing landscape of remote work. With more people working from home, the demand for office space has shifted. Companies are adopting flexible work arrangements, which might mean they need less office space or could opt to downsize their current office footprint. Reduced demand for office space can lead to higher vacancy rates in office properties, potentially impacting the rental income generated by office REITs. If these REITs have a significant investment in office properties, they could experience declining rental income and property values. 

Secondly, consider the impact of high-interest rates. As an investor, you should know that non-traded REITs often rely on borrowing to finance property acquisitions and improvements. When interest rates rise, borrowing costs increase, potentially squeezing the REIT’s profitability and its ability to distribute dividends to investors. This situation might make the investment less appealing, especially in a rising interest rate environment. 

Additionally, keep in mind the issue of liquidity. Non-traded REITs typically have less liquidity compared to publicly traded REITs. If you invest in non-traded REITs, you might find it challenging to sell your shares quickly, and you could face restrictions on when and how you can exit your investment. In uncertain market conditions or when the investment outlook is less favorable, this lack of liquidity can become a risk, as you may not be able to access your capital easily. 

Lastly, consider the issue of valuation uncertainty. Non-traded REITs are known for their opaque valuation practices.  As an investor, it can be challenging to assess the true value of your investment, particularly during turbulent times. 

Free Consultation with Securities Attorneys

Broker dealers are required to inform clients of the risks associated with investment recommendations and to ensure that those recommendations are suitable for the investor in light of the investor’s age, risk tolerance, net worth, and investment experience. Firms that fail to do so may be held responsible for any losses.   

If you have suffered losses investing in Pacific Oak Strategic Opportunity REIT, please contact The White Law Group at 888-637-5510 for a free consultation.   

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Seattle, Washington. Our firm represents investors in FINRA claims in all 50 states.